37434 Federal Register / Vol. 63, No. 132 / Friday, July 10, 1998 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b-4.

3 15 U.S.C. 78s(b)(3)(A).

4See Securities Exchange Act Rel. No. 34161

(June 6, 1994), 59 FR 30379 (June 14, 1994);

Securities Exchange Act Rel. No. 34603 (Aug. 25,

1994), 59 FR 45049 (Aug. 31, 1994); Securities

Exchange Act Rel. No. 35128 (Dec. 20, 1994), 59 FR

66989 (Dec. 28, 1994); Securities Exchange Act Rel.

No. 35544 (March 28, 1995), 60 FR 16896 (April 3,

1995); Securities Exchange Act Rel. No. 35879 (June

21, 1995), 60 FR 33447 (June 28, 1995); Securities

Exchange Act Rel. No. 36857 (Feb. 16, 1996), 61 FR

7034 (Feb. 23, 1996); Securities Exchange Act Rel.

No. 37675 (Sept. 12, 1996), 61 FR 49368 (Sept. 19,

1996); Securities Exchange Act Rel. No. 39084

(Sept. 16, 1997), 62 FR 49717 (Sept. 23, 1997).

See MSRB Reports, Vol. 14, No. 3 (June 1994) at

11–16; Vol. 14, No. 4 (Aug. 1994) at 27–31; Vol. 14,

No. 5 (Dec. 1994) at 8; Vol. 15, No. 1 (April 1995)

at 21; Vol. 15, No. 2 (July 1995) at 3–4; Vol. 16, No.

1 (Jan. 1996) at 31; Vol. 16, No. 3 (Sept. 1996) at

35–36; and Vol. 17, No. 3 (Oct. 1997) at 11–12. See

also CCH Manual ¶ 3681.

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40167; File No. SR–MSRB–

98–10]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Municipal Securities Rulemaking

Board Relating to Interpretation of

Rule G–37 on Political Contributions

and Prohibitions on Municipal

Securities Business

July 2, 1998.

On June 30, 1998, the Municipal

Securities Rulemaking Board (‘‘Board’’

or ‘‘MSRB’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) a proposed

rule change (File No. SR–MSRB–98–10)

pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder.2

The proposed rule change is described

in Items, I, II, and III below, which Items

have been prepared by the Board. The

Board has designated this proposed rule

change as constituting a stated policy,

practice, or interpretation with respect

to the meaning, administration, or

enforcement of an existing rule of the

Board under Section 19(b)(3)(A) 3 of the

Act, which renders the proposed rule

change effective upon receipt of this

filing by the Commission. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Board is filing herewith a

proposed rule change consisting of a

notice of interpretation, in questionand-answer format, concerning Rule G–

37, on political contributions and

prohibitions on municipal securities

business. The proposed rule change is

as follows:

Rule G–37, on Political Contributions

and Prohibitions on Municipal

Securities Business

Since May 1994, the Board has

provided interpretive guidance on Rule

G–37 through the publication of eight

Question & Answer (‘‘Q&A’’) notices.4

The Board recently has received a

number of questions concerning mergers

in the municipal securities industry and

the operation of the exemptive

provision set forth in section (i) of the

rule from market participants and the

agencies charged with enforcing the

rule. As a result, the Board has

determined that it is necessary to

provide further guidance to the industry

and the applicable enforcement agencies

by confirming and elaborating upon

guidance provided in prior Q&A notices

and in prior communications with the

applicable enforcement agencies.

Accordingly, the Board is publishing

this ninth set of questions and answers.

Questions and Answers Regarding Rule

G–37(i)

1. Q: A person is associated with a

dealer in a non-municipal finance

professional capacity and makes a

political contribution to an official of an

issuer for whom such person is not

entitled to vote. Less than two years

after such person made the contribution,

the dealer merges with another dealer

and, solely as a result of the merger, that

person becomes a municipal finance

professional of the surviving dealer.

Would the surviving dealer be

prohibited from engaging in municipal

securities business with that issuer?

A: Yes. Rule G–37 would prohibit the

surviving dealer from engaging in

municipal securities business with the

issuer for two years from the date the

contribution was made. Of course, the

surviving dealer’s prohibition on

business would only begin when the

person who made the contribution

becomes a municipal finance

professional of the surviving dealer.

The Board notes, however, that Rule

G–37 was not intended to prevent

mergers in the municipal securities

industry or, once a merger is

consummated, to seriously hinder the

surviving dealer’s municipal securities

business if the merger was not an

attempt to circumvent the letter or spirit

of Rule G–37. Thus, the Board believes

that it would be appropriate for the

NASD or the appropriate regulatory

agency (i.e., federal bank regulatory

authorities) to grant conditional or

unconditional exemptions from bans on

municipal securities business arising

from such mergers if the NASD or the

appropriate regulatory agency

determines that, pursuant to Rule G–

37(i), the exemption is consistent with

the public interest, the protection of

investors and the purposes of the rule,

as well as any other factors set forth in

the rule or any other factors deemed

relevant by the NASD or the appropriate

regulatory agency.

2. Q: The Board has previously

provided two examples in which

exemptions from a ban on municipal

securities business may be appropriate

under Rule G–37(i). Are these the only

situations in which the NASD or the

appropriate regulatory agency may

provide an exemption under Rule G–

37(i)?

A: No. The two examples noted in

Q&A number 4 (June 15, 1995), MSRB

Reports, Vol. 15, No. 2 (July 1995) at 3–

4, MSRB Manual (CCH) ¶ 3681, were

not meant to be the only instances in

which exemptions might appropriately

be given. Because of the varying factual

situations that arise with each

exemptive request, the Board believes

that the NASD and the appropriate

regulatory agencies should review such

other factual situations presented by

dealers in exemptive requests pursuant

to the requirements in Rule G–37(i) and,

based on the facts, either approve or

reject the request. Rule G–37(i) allows

the NASD and the appropriate

regulatory agencies to grant exemptions

from the ban on business ‘‘conditionally

or unconditionally’’ and, if the NASD or

the appropriate regulatory agency

believes it would be appropriate to

shorten the ban on business or limit its

scope, it is authorized to do so as long

as the requirements of Rule G–37(i) are

met.

3. Q: The Board has previously

described three situations which it

believes are not sufficient to justify the

granting of an exemption from a ban on

municipal securities business under

Rule G–37(i). Does this mean that the

NASD or the appropriate regulatory

agency may never provide an exemption

under Rule G–37(i) if any of these

situations exist?

A: No. The Board’s intent in

describing these three scenarios in Q&A

number 4 (June 15, 1995), MSRB

Reports, Vol. 15, No. 2 (July 1995) at 3–

4, MSRB Manual (CCH) ¶ 3681, was to

note that none of these situations was

sufficient, in and of itself, to justify the

granting of an exemption from a ban on

municipal securities business. However,

any such scenario in combination with

other facts and circumstances deemed
Federal Register / Vol. 63, No. 132 / Friday, July 10, 1998 / Notices 37435

5Securities Exchange Act Release No. 33868

(April 7, 1994), 59 FR 17621 (April 13, 1994). The

rule applies to contributions made on and after

April 25, 1994.

6See supra note 3.

7See Securities and Exchange Act Release No.

34161 (June 6, 1994), 59 FR 30379 (June 13, 1994)

(SR–MSRB–94–06) and Securities and Exchange

Act Release No. 34603 (August 25, 1994), 59 FR

45049 (August 31, 1994) (SR–MSRB–94–15).

8Section 15(b)(2)(C) states in pertinent part that

the rules of the Board ‘‘shall be designed to prevent

fraudulent and manipulative acts and practices, to

promote just and equitable principles of trade, to

foster cooperation and coordination with persons

engaged in regulating, clearing, settling, processing

information with respect to, and facilitating

transactions in municipal securities, to remove

impediments to and perfect the mechanism of a free

and open market in municipal securities, and, in

general, to protect investors and the public

interest.’’

9 17 CFR 240.19b–4(e)(1).

10 17 CFR 200.30–3(a)(12).

relevant by the NASD or the appropriate

regulatory agency (including, but not

limited to, the factors set forth in Rule

G–37(i)) could, in the judgment of the

NASD or the appropriate regulatory

agency, be sufficient to justify a

conditional or unconditional exemption

from the ban.

The Board also notes that none of the

three situations previously cited as

insufficient to justify an exemption

involved a contribution made prior to

an individual becoming a municipal

finance professional. Thus, for example,

where a non-de minimis contribution

was made by a person who later

becomes a municipal finance

professional (whether by reason of a

merger, as a newly hired associated

person, as an existing associated person

becoming involved in municipal

securities activities, or otherwise),

neither the NASD nor any appropriate

regulatory agency is constrained from

granting a conditional or unconditional

exemption if, in its judgment, such

exemption is consistent with Rule G–

37(i).

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Board included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments it received on the proposed

rule change. The texts of these

statements may be examined at the

places specified in Item IV below. The

Board has prepared summaries, set forth

in Sections A, B, and C below, of the

most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

On April 7, 1994, the Commission

approved Board Rule G–37, on political

contributions and prohibitions on

municipal securities business.5 Since

that time, the Board has received

numerous inquiries concerning the

application of the rule. In order to assist

the municipal securities industry and,

in particular, brokers, dealers and

municipal securities dealers in

understanding and complying with the

provisions of the rule, the Board

published eight prior notices of

interpretation which set forth, in Q&A

format, general guidance on Rule G–37.6

In prior filings with the Commission,

the Board stated that it will continue to

monitor the application of Rule G–37

and, from to time, will publish

additional notices of interpretations, as

necessary.7 The Board recently has

received a number of questions

concerning mergers in the municipal

securities industry and the operation of

the exemption provision set forth in

section (i) of the rule from market

participants and the agencies charged

with enforcing the rule. As a result, the

Board has determined that it is

necessary to provide further guidance to

the industry and the applicable

enforcement agencies by confirming and

elaborating upon guidance provided in

prior Q&A notices and in prior

communications with the applicable

enforcement agencies. Accordingly, the

Board is publishing this ninth set of

Q&As.

The Board believes the proposed rule

change is consistent with Section

15B(b)(2)(C) of the Act.8

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Board does not believe that the

proposed rule change will impose any

burden on competition not necessary or

appropriate in furtherance of the

purposes of the Act, because it would

apply equally to all brokers, dealers and

municipal securities dealers.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The Board has designated this

proposed rule change as constituting a

stated policy, practice, or interpretation

with respect to the meaning,

administration, or enforcement of an

existing Board rule under Section

19(b)(3)(A) of the Act and Rule 19b–4(1)

thereunder,9 which renders the

proposed rule change effective upon

receipt of this filing by the Commission

At any time within sixty days of the

filling of this proposed rule change, the

Commission may summarily abrogate

such rule change if it appears to the

Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room. Copies of the filing will also be

available for inspection and copying at

the Board’s principal offices. All

submissions should refer to File No.

SR–MSRB–98–10 and should be

submitted by July 31, 1998.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18297 Filed 7–9–98; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

[Declaration of Disaster #3094]

State of Massachusetts

As a result of the President’s major

disaster declaration on June 23, 1998, I

find that Bristol, Essex, Middlesex,

Norfolk, and Suffolk Counties in the

State of Massachusetts constitute a

disaster area due to damages caused by